Typography

Recent market action is a good reminder of the asymmetry in markets. In general, stock market rises don't look like stock market declines. Stock indexes slowly eke out gains over a period of months, but lose all of those gains just a few days. There are plenty of famous meltdowns in stocks, including 1914, 1929, 1987, and 2008, but almost no famous "melt ups." Just like the Inuit have multiple words for snow because they are surrounded by the stuff, equity commentators have many words for crashes (panics, selloff, etc). These events are not uncommon. In the same way that many indigenous African languages have no word for snow, we lack a good word to describe one or two day melt-ups in equity markets since these aren't part of our landscape. There are a number of trader's adages that describe this pattern, including bulls walk up the stairs, bears jump out the window and variations on that theme. In the economic literature, this phenomenon is referred to as negati

It's been a while since I blogged about Canadian monetary policy, but Luke Kawa's recent tweet on the topic of Canada's effective lower bound got me thinking. BoC has referred to 0.25% as its "effective lower bound" -- Shenfeld suggested that any lower, BoC thinks there'll be problems in money mkts — Luke Kawa (@LJKawa) August 4, 2015 Luke is referring here to CIBC chief economist Avery Shenfeld's recent missive on how the Bank of Canada might react if the Canadian economy's losing streak were to continue. According to Shenfeld, the Bank of Canada has one final quarter point cut left in its quiver—from 0.5% to 0.25%. Should the bleeding continue, Governor Stephen Poloz can then turn to forward guidance and only when that has been exhausted will quantitative easing become a possibility. Really? The Bank of Canada can't go below 0.25%? Has Shenfeld not been following what has been occurring outside Canada's borders over the last twelve months?

1934 Chinese silver dollar with Sun Yat-sen on the obverse side. The ship may be in freshwater. I have been hitting my head against the wall these last few weeks trying to understand Chinese monetary policy, a project that I've probably made harder than necessary by starting in the distant past, specifically with the nation's experience during the Great Depression. Taking a reading break, I was surprised to see that Paul Krugman' s recent post on the topic of freshwater macro had surprising parallels to my own admittedly esoteric readings on Chinese monetary history. Unlike most nations, China was on a silver standard during the Great Depression. The consensus view, at least up until it was challenged by the freshwater economists that people Krugman's post, had always been that the silver standard protected China from the first stage of the Great Depression, only to betray the nation by imposing on it a terrible internal devaluation as silver prices rose. This would ev